Saturday 26 September 2020
  • :
  • :

Exploring the Cost Benefits of Software Outsourcing

Exploring the Cost Benefits of Software Outsourcing

Cost benefits1What are ALL the cost benefits of the Software Outsourcing Model?  There are many ways to sell it to leadership to help get everyone on board. 


One of the major benefits of outsourcing your software development is the cost advantage. There is no doubt that is a true statement but typically the details of how cost savings are really achieved, what is the extent of it and how can it be maximized is not discussed in depth. In this article, I will delve into all the elements of the cost advantages including recommended ways to maximize it.


The Hourly Rates Myth

It is easy to peg the cost advantage squarely on the hourly rate. After all, isn’t the cost of the software project directly proportional to the average hourly rate of the software team multiplied by the number of estimated hours? Of course most experienced software managers know that software projects never end up completing within the estimated schedule. There are project schedule over runs, lingering quality and maintenance issues, possible architectural flaws that can haunt the software long after the project is over and done with.


While a low negotiated hourly rate could look attractive initially, what tends to impact the Total Cost Of Product is determined by the quality and experience level of the team much more than simply the hourly rate.


Focusing on Hiring the Right Team

The cost ranges for outsourced software developers vary so widely that it makes no sense to the average software development manager. How can offshore .NET Developers cost range from as low as $8/Hr all the way up to $38/Hr? How do we determine if we are getting a deal or we are getting scammed?


It is vital while selecting the team to really understand what you are getting, I mean really understand. In countries such as India the discrepancies in levels of education are considerable. Since an IT career is a ticket out of poverty for most people, there is a serious dilution of the talent pool. Thirty years ago, only the cream of the crop from the engineering talent pool went into IT and software fields. Today graduating ‘software engineers’ is big business, so there are countless channels through which software engineers are delivered to the ever hungry market.


Developing a keen awareness for the quality of talent you hire is very important. Make sure to conduct extensive interviews of the candidates, work out try and buy approaches, talk to the founders and management and ascertain the selection and training process adopted by the outsourcing provider.


Factoring in the True Cost of In-house Teams

When comparing the costs of in-house vs outsourced teams, be sure to factor in costs of hiring each in-house team member, training and fixed overhead costs such as equipment, workstation and office space. Typically the costs of preparing an outsourced team to be productive is borne by the outsourced provider.


Cost Control Through Better Project Management

After you have selected the right team and negotiated a good pricing structure, effective project management can make a huge difference in the overall cost of the project. Since outsourcing typically involves working with virtual teams, often with differing cultural backgrounds, if not managed correctly there is potential for much waste and inefficiency. Using effective tools for managing deliverables, constant communication and frequent review of accomplishments and timely course correction are very important in making the outsourcing endeavor successful.


The cost differences between a domestic software team and an outsourced offshore provider are usually significant, especially on paper. However to achieve the purported savings, several factors as covered here have to be managed correctly. If done correctly, these cost savings can truly help your organization create state of the products at a significant cost advantage leading to enhanced profitability.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.